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As we enter the second week of tax season, several NAIFA members have asked us what the deal is with the new tax law’s 20 percent income deduction for S corporations and other pass-through businesses. The answer, as we might expect with so many things coming out of Washington these days: It depends.

Under the 2018 Tax Cuts and Jobs Act, owners of S corporations, partnerships, sole proprietors, and limited liability companies (LLCs) taxed as a pass-through entities may be able to take up to a 20 percent deduction of their qualified business income. Note the key word in that sentence: They may be able to….

The 199A deduction is both complex and limited. Certain businesses are excluded from taking the deduction, including financial services, consulting, accounting, and other service businesses, called “specified service trades or businesses.”

NAIFA’s advocacy work on behalf of our members helped persuade the Treasury Department that businesses providing insurance services should be eligible, and this is reflected in Treasury’s final rule. Unfortunately, we did not get everything we asked for. NAIFA members who provide insurance services but receive more than 10 percent of their revenue from investment advice and/or financial planning services may not be eligible.

But this is the IRS we are dealing with. So even if that seems somewhat straight-forward… it still depends.

Further complicating matters, you may be able to claim the deduction when income from an investments or planning business exceeds the 10 percent threshold if your total income is below $315,000 for joint filers and $157,500 for single filers. There are phase outs up to $415,000 and $207,500, respectively, and there are computations that may limit the deduction based upon your W-2 wages as well.

Yep, it’s time to call your tax specialist. This is not a DIY tax topic!

And if that’s not clear enough, here’s an official disclaimer: Every taxpayer’s situation is unique, and NAIFA does not provide tax advice. This blog post is for informational purposes only, and is not intended to provide tax, legal, or accounting advice. You should consult your own tax, legal, and accounting experts.